•On 12/31/16, GCC purchased an equipment for $50,000. •GCC expects the equipment

Question

•On 12/31/16, GCC purchased an equipment for $50,000.

•GCC expects the equipment to have a 5-yr useful life with no “salvage value”.

•GCC uses straight line depreciation.

•

•Questions:

1.What journal entry should GCC book for the purchase of the equipment?

2.How much is the monthly depreciation expense?

3.What journal entry should GCC book monthly for the depreciation expense?

4.What is the balance of accumulated depreciation at the end of year 2?

5.What is the net book value of the equipment at the end of year 2?

6.Which statements should you report (i) depreciation expenses? (ii) accumulated depreciation?

Explanation / Answer

1 Straight line depreciation = (Cost of asset - salvage value )/ Life of the asset Depreciation expense = (50000-0) /5 10000 Accumulated depreciation Depreciation expense Book value Year 0 0 50000 1 10000*12/12 10,000 10,000 40,000 2 10000*12/12 10,000 20,000 30,000 3 10000*12/12 10,000 30,000 20,000 1 Equipment 50000              Cash 50000 2 Depreciation expense per month = 10000*1/12 833 3 Depreciation expense 833               Accumulated depreciation equipment 833 4 Accumulated depreciation at end of year 2 20000 5 Book value at end of year 2 30000 6 Depreciation expense Income statement Accumulated depreciation Balance sheet

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